If you’re asking yourself this question, congratulations, this is a great question to ask! If you don’t explore this before buying or converting a HMO, you may be in for a costly ride! You won’t find this content in any training course and in few books, yet I think it’s very important to understand this.

Have you really got your numbers right? When looking at your investment numbers you will generally have a spreadsheet which totals up all of your costs, and then all of your income. Basic calculations of income against costs will give you your investment numbers - yield, ROI, cash flow etc. When you compare these to buy to lets your eyes will widen and your heart will start to beat a bit faster. But don’t get too carried away yet. Most people under estimate their costs at this stage. The greatest margin for error here is your refurb cost. Even if your trusted builder has priced up the job, even his experience can’t tell him what he has yet to find. You will need a contingency figure here. 10% would usually cover it, but 20% would be prudent. The next thing investors are under estimating at the moment here is voids. If your voids contingency looks like just 10%, you may need to think again! Which leads me on to me next point.

Should I buy a HMO in Leeds? Lots of people who are interested in property are asking this question right now.

HMO’s have always been popular for investors seeking high yields but recently we have seen interest skyrocket from investors.

Why is that?

There’s a number of reasons, I’ll explain a few.

The ‘Section 24’ tax changes. The government are taking away the tax break investors and landlords used to get by off setting their mortgage payments against tax. This includes interest, capital repayments, and finance costs. This began to be phased out in 2017-2018 and by 2020-2021 none of these costs will be tax deductable.

Stamp duty hike for investors. From April 2016 the government have increased the rate of SDLT on property purchases by 3% (where the property isn’t being used as your only home and residence, i.e on all rental property).

The rise of property investment training companies. This is big business with day courses selling for around £500 and weekend courses selling for around £1500. The big training companies teach various property investing strategies, including HMO’s as one of their main ones.

High entry price and low returns in the south east and London. High returns and low entry price in the north. Lots and lots of cash is coming from the south are investors head up the M1 to benefit from this!